Inefficient Standard Adoption: Inertia and Momentum Revisited

Matthew T Clements

1/01/2005
(Original Publish Date: 10/7/2004)

This paper examines the possibility that consumers will adopt an inefficient standard. When there are successive generations of consumers, the current generation will not consider the costs and benefits to past and future generations of adopting a new standard. If a standard is proprietary, the incentives of a firm to induce adoption of the standard generally do not match the social incentives. The divergence is caused by the firm's imperfect ability to appropriate the future surplus generated by the standard.